Ed knows how to woo the Unions. His threat that the banks will have to be split, detaching investment banking from High Street banking, will be popular with the Unions. It will send a subliminal message to the many that Ed is on their side, because he is against the big banks.
It does not seem very likely,were there to be a future Labour government. After all, the last Labour government encouraged the build up of the large comglomerate banks. It welcomed the foolish mergers which brought about RBS. It flagged them through the system. The regulators just stood and watched as the debts were heaped up. It helped push HBOS into Lloyds arms. It left state owned RBS intact, and appointed management with the task of trying to make it a successful conglomerate.Seeking the break up would be quite a volte face from previous policy.
Simply splitting investment banking from High Street banking would not have stopped the 2007-8 crisis anyway. Northern Rock, Bradford and Bingley , Freddie and Fannie, were all regular mortgage banks. They were not brought down or put into financial difficulty by irresponsible investment banking arms. Threatening to enforce the split in a global bank like HSBC might simply lead to it leaving London, or might prove beyond any UK government’s jurisdictional reach.
The one bank that could be split up, and should be split up, is RBS. It is a pity the Labour government did not do it in 2008-9. It is a pity the incoming Coaliton government did not issue new orders and negotiate new requirements and contracts with the incumbent Board in 2010, and seek to break it up then. Cross party consensus on splitting RBS would now be welcome.
Those few of us who argued in 2008 that RBS should have been put into controlled administration, with short term liquidity support and proper deposit protection, were shouted down. Instead government decided to bail out the bondholders and lose a fortune on buying shares. Now we have won the argument for a “next crisis”. The Vickers Report, the FSA and the governmant all agree that any future large bank in trouble should be put into controlled administration, following its “living will”.
If that makes sense for a future crisis, why don’t we get on and do it now to clear up the large overhang of the last crisis? Whilst RBS is largely state owned, it provides a means of testing the theory.